I turned to my favorite resource (Google) and found out what a catalytic converter does. http://auto.howstuffworks.com/question66.htm
Basically, it converts the exhaust products from hydrocarbons, carbon monoxide, and nitrogen oxides into carbon dioxide, water, nitrogen and oxygen. I'm guessing this isn't 100% effective, since people still get carbon monoxide poisoning from running cars in closed garages. As for emissions testing, every one that I've
ever gone to puts a little probe in the tail-pipe and lets the engine run a little, which would confirm that the catalytic converter is doing a 'good enough' job.
From what I read, it doesn't sound like the car's computer actually does
anything to adjust the functioning of the catalytic converter, but simply gives you a reading from those sensors as to 'how well' it's doing. EDIT: PICTURE!
If crap from the ethanol is getting on the sensors (based on your mechanic 'cleaning off the sensors'), then it might be giving you a faulty reading - but the probe that the emissions guys would be using wouldn't have that accumulation.
*Disclaimer - I am not a mechanic, or even a particularly good chemistry person.